UK commercial property picks up as investor demand stays strong

The UK commercial property market picked up in February, producing an improved total return of 0.8% and capital growth of 0.3%, according to CB Richard Ellis’ latest UK Monthly Index. This represents a marginal increase on January’s 0.7% total return, as property yields continued to nudge downwards as a result of continued investor demand. Retail Warehouses had a strong month with a total return of 1.0% and capital growth of 0.5%, although Central London offices remained the strongest performing sub-sector, having outperformed for the duration of the property market recovery, with total returns of 1.5% and capital growth of 1.1% in February.

February UK Monthly Index snapshot:

• All property values rose by 0.3% over the month, producing total returns of 0.8%.
• As a result of continued strength in Central London, offices were the top performing sector in February, with a total return of 1.0% and capital growth of 0.5%.
• Rest of UK offices were again the weakest sub-sector, seeing an improved total return of 0.3% after the -0.1% recorded in January.
• Industrial returns slowed in February after being the top performing sector in January. They produced total returns of 0.5%, with no capital growth.
• All retail sub-sectors recorded positive capital growth in February, with standard shops and retail warehouses seeing improved results, whilst shopping centre performance stayed flat. Overall the sector as a whole saw returns improve to 0.8% from 0.6% in January, with capital growth of 0.3%.
• All Property rental values were flat in February, after a marginal fall in January.

Nick Parker, Senior Analyst at CBRE, said: “With both the retail and office sectors showing improved results, and industrial the only sector which saw slightly weaker returns, February’s property market performance in the UK was generally more encouraging than what was seen last month. Perhaps the most positive story is the resilience being shown in the retail sector, with all three sub-sectors producing stronger than anticipated returns, despite concerns surrounding the strength of the consumer economy.

“A worrying area in terms of recovery prospects remains the regional office markets, where despite a positive total return in February, values continue to correct. Even prime offices in the regions have seen little in the way of a recovery, unlike Central London where both prime and secondary property is enjoying a continued resurgence in values,” concluded Parker.